Income Tax in Retirement Years
When you are earning a monthly income, paying the bills and mortgage, buying groceries, and going on
vacation seems like a breeze. Everything seems doable when you are earning. What happens when you
retire? The big question: what happens to your income tax in retirement years? Let’s talk about it!
Income Tax in Retirement Years : Paul and Sandra have both retired, but Sandra receives a larger retirement pension from her work than
her partner. How can they manage income tax in retirement years if that is the case? Sandra can
transfer a portion of her income on her tax return.
Called income splitting, it will decrease her taxable income by shifting a part of her income to her
partner earning a lower retirement pension than her. As a retired couple, this will reduce their overall
tax burden. If you can relate to this scenario, you should consider income splitting as well.
What is Retirement Pension Income Splitting?
If you are looking at retirement pension income splitting as an option to relieve the tax burden off you,
first find out if you qualify for it. You do not have to be married to your partner, but you do have to live
in Canada and together.
However, there are exceptions to this.You can live apart from your partner for work, school, or a
medical reason. If you are not on good terms with your partner, you will not be eligible for income
splitting, especially if you lived apart from each other for over 90 days.
How Do You Split Your Income?
You can transfer up to 50% of your retirement pension to your partner. You will need to file and submit
the Joint Election to Split Income application (Form T1032). No need to go through the hassle to fill it out
yourself. Hire an insurance company or brokerage firm to fill it out for you.
CPP, OAS, RRSP, RRIF, and Life Annuity — Which One Can You Split?
You cannot split the Canada Pension Plan (CPP) and Old Age Security (OAS). You can split income from
your RRSP, RRIF, and life annuity. This is only for partners who are 65 and older. If you are under 65, only
certain life annuity payments will be applicable.
In the event your partner passes away, you can split the amount they receive from the RRSP and RRIF.
Important to note that taxpayers in Quebec who are under 65 cannot split their retirement income
pension for provincial income tax.
You can visit an insurance company to help you figure out your net income and taxable income. They
can assist you with several areas of filing for taxes and splitting your income. With their assistance, you
can enjoy your retirement years in peace.
